The Banks Have All The Cash

A buyer asked me the other day if I knew where all the money was. I explained to him that the money is there, simply the banks just don’t want to lend it at the moment. It’s unfortunate, but unless a buyer has upwards of twenty-five percent down, they simply will deny the application.

The housing industry is tough. It doesn’t take an economist to figure that out. In fact, my six year old son came to me the other day and asked if we were going poor (I didn’t tell him we were already there!). But the fact remains that there are signs of recovery, or at least we are starting down that road.

The housing market is going to make a come back. Everyone will tell you that, at least. But that road to recovery will be slow and steep.

As I mentioned in a previous blog, the Urban Land Institute (ULI) just conducted a survey where they interviewed housing professionals, private developers, agents, brokers, etc, asking their opinion on the areas most likely to benefit from a speedy market recovery. Seattle and San Francisco topped the list, with New York, DC and LA to follow. Specifically, those cities with international appeal and foreign investment opportunities will be the first to feel the turn around…but many believe other cities will follow closely.

In the new home sectors, there are developers that have taken their ‘for sale’ developments and converted them to ‘for rent’, to ride out the current market. Those were the developers that got caught on the wrong side of the market once it started to turn. While some developers buried their heads in the sand pretending the first waves of a slowdown were going to go away, other developers recognized the slow down and began to make concessions and cut prices ahead of what was to come.

Many developers with plans to build have placed those developments on hold or have cancelled them all together. In fact, I can’t help walking down the streets of any major city, noticing the disappearance of construction cranes that so frequented the skylines of most major metropolitan areas not too many years ago.

In the resale markets, we started to see a rise in available inventory. Some owners convinced their listing agents to stay with the current list price in hopes that the increase in inventory was simply a seasonal thing and it would adjust. Other agents were able to read the market with accuracy, while owners lowered their prices just in time to sell.

It’s been about fifteen months since the market turned, assuming we use the August, 2007, date that most refer to as the reference point for the start of the bad real estate market. Fewer projects have come on line, and though I still see a large number of ‘For Sale’ signs in my neighborhood, most agents would agree that inventory is starting to thin itself out.

The banks, on the other hand, had enjoyed great success in their money lending days. With the economy the way it is today, however, people are not looking to take their money out for investment purposes, certainly not in the stock markets. In addition, nor has lending requirements gotten any easier to allow for those people to borrow money from the banks. Therefore, the money sits and collects interest.

Simply put, the banks can’t afford to continue to act as a safe harbor for consumers while paying out interest to all that money that is sitting in their vaults (or wherever they keep it all). Banks make money from lending money.

Though many seem to think that the days of EZ loans is over, I tend to think that the banks are going to start to lend their money sooner rather than later. The competition will be fierce amongst these banking conglomerates, so new loan programs will have to be developed to compete in the new markets.

Let’s not forget about the government bail out programs already in place that will help our industry back on its feet, and interest rates that have remained consistently low throughout the last fifteen months.

Low available inventory, government assistance programs for consumers and banks, low and stable interest rates, and banks that will come out of the gates willing and able to loan money is a recipe for recovery. I, for one, have plenty of clients looking to get their hands on that cash. I just hope that day will come sooner rather than later.